How Do Hybrid Cars Affect the Economy?

Every U.S. president since Richard Nixon has bemoaned the reliance on foreign oil imports. Several technologies are aimed at reducing consumption, including hybrid electric vehicles. Hybrids maximize fuel efficiency and provide some of the car’s energy with electricity generated by homegrown sources. Enthusiasts hope that hybrids can positively affect not just individual spending but the national economy.

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Personal Energy Expenditures

At a cost of $2.75 per gallon of gasoline, a hybrid that gets a combined 42 miles per gallon will result in an annual fuel cost of $982. A gasoline-only car that gets 25 mpg yields an average annual fuel cost of $1,650.

Life Cycle Cost

The true cost of owning a hybrid depends not just on the fuel savings but also the maintenance costs, insurance and the amount paid over the cost of a standard gasoline model. A hybrid's cost compared to a comparable nonhybrid model is between $1,700 and $11,200 higher as of 2010, according to Edmonds research. Tax incentives helped to defray some of that cost between 2005 and 2010, but unless a new bill is introduced extending those benefits at the federal level, hybrid buyers might only be eligible for smaller, state-based incentives. The fuel savings over time is how most of the premium is “paid back.” Because insurance costs are generally 5 percent lower for hybrids and maintenance costs are roughly equal between hybrids and gasoline-only cars, the factors determining the length of time it takes to start saving money by driving a hybrid are the amount of premium paid and the cost of fuel. Higher fuel costs result in more dollar savings, so the payback time is shortened.

Gross Domestic Product

Ballooning fuel prices take money away from disposable income, resulting in less retail spending and smaller business investment, which has a negative effect on the nation’s gross domestic product. The greater fuel efficiency offered by hybrid cars shields families and businesses from fluctuating oil prices and leaves more money available to circulate through the economy.

Trade

IN 2008, oil prices rose to $120 per barrel, making oil responsible for 75 percent of the U.S. trade deficit, according to RCF, a Chicago-based economic consulting company. Anything that reduces oil imports has a positive net effect on the trade imbalance because domestic supplies have peaked and environmental and cost concerns make extraction of the more difficult to reach reserves untenable. Broader market penetration of hybrid vehicles will chip away at the oil imports, which are the single biggest driver of the trade deficit no matter what the price of oil is.

Climate Change

Automobile emissions contribute significant amounts of carbon dioxide to the atmosphere, which worsens the implications of climate change. Hybrids could help in that effort by increasing fuel efficiency and thus lowering emissions. The economic effect of a warming planet has two phases: mitigation costs and adaptation costs. The adaptation costs include possible relocation of coastal populations, decreased agricultural production, water shortages and increased defense spending as global changes cause unrest and conflict, according to the Center for Integrative Environmental Studies at the University of Maryland in their 2007 report. Mitigation costs are those associated with reversing or at least halting the problem. They include investment in clean energy technologies, a tax on carbon emissions which could raise overall energy prices and slower GDP growth due to more expensive clean energy sources.